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EMEA Natural Gas Update: Futures Surge on Rise in Power Demand as Heatwave Scorches Europe

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European natural gas futures were up on Friday, hitting a three-week high, as extreme heat continues to bear down on the continent, offsetting the easing of tensions along the Strait of Hormuz.

The front-month Dutch TTF contract rose 1.93% to 44.865 euros ($51.37) per megawatt-hour, while the UK front-month NBP contract gained 2.48% to 107.100 British pence ($1.43) per therm. Both Dutch TTF and UK Gas were up 9.66% and 9.37% for the week, respectively, according to TradingEconomics.

Europe continued to experience record-breaking temperatures that have "shattered historical records," with the heatwave forecast to expand eastward into the heart of the continent, according to Severe Weather EU.

The prolonged hot weather is expected to boost gas-fired power demand as electricity consumption for air conditioning and other cooling needs increases.

This has helped offset bearish sentiment following "positive progress" in indirect talks between the US and Iran earlier this week in Doha, with the next round scheduled to take place after the funeral of the former Supreme Leader of Iran, according to an Al Jazeera report.

Meanwhile, the strategically crucial Strait of Hormuz, which accounted for one-fifth of global LNG flows, witnessed elevated traffic, with 27 vessels passing over the past 24 hours, according to the Hormuz Strait Monitor.

However, according to analysts at ING, the natural gas markets could see "a more gradual recovery in supplies following the temporary peace deal," which they said leaves Europe vulnerable.

Cyril Widdershoven, geopolitical strategist at Blue Water Strategist, echoed similar concerns, warning that the movement along the Hormuz should not be mistaken for "normality," while noting persistent security risks, elevated insurance costs, and geopolitical uncertainties.

This comes amid depleted gas inventories across the region, at just 49.22% of capacity, compared to 59.15% during the corresponding period a year ago, according to data from Gas Infrastructure Europe.

Inventories were also significantly below the five-year average for this period, at 64.1%, according to the Swiss Federal Office of Energy.

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